As filed with the Securities and Exchange Commission on April 8, 2005 SECURITIES AND EXCHANGE COMMISSION. Washington, D.C

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1 As filed with the Securities and Exchange Commission on April 8, 2005 SECURITIES AND EXCHANGE COMMISSION Washington, D.C Form 20-F REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSACTION PERIOD FROM TO (Commission file number ) AKTIEBOLAGET ELECTROLUX (PUBL) (Exact Name of Registrant as Specified in Its Charter) Not Applicable (Translation of Registrant s Name Into English) Kingdom of Sweden (Jurisdiction of Incorporation or Organization) S:t Göransgatan 143, SE Stockholm, Sweden (Address of Principal Executive Offices) Securities registered or to be registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Title of each class Class B Shares (SEK 5 nominal amount, non restricted) Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None Indicate the number of outstanding shares of each of the issuer s classes of capital or common stock as of the close of the period covered by the Annual Report: B Shares (SEK 5.0 nominal value) 299,418,033 A Shares (SEK 5.0 nominal value) 9,502,275 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark which financial statement item the registrant has elected to follow. Item 17 X Item 18

2 PART I... 1 ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS... 1 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE... 2 ITEM 3. KEY INFORMATION... 3 A. Selected Financial Data... 3 B. Capitalization and Indebtedness...5 C. Reasons for the Offer and Use of Proceeds... 5 D. Risk Factors... 5 ITEM 4. INFORMATION ON THE COMPANY A. History and Development of the Company B. Business Overview C. Organizational Structure D. Property, Plants and Equipment ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS A. Operating Results B. Liquid Funds and Capital Resources C. Research and Development, Patents and Licenses, etc D. Trend Information E. Off-Balance Sheet Arrangements F. Aggregate Contractual Obligations ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES A. Directors and Senior Management B. Compensation C. Board Practices D. Employees E. Share Ownership ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS A. Major Shareholders B. Related Party Transactions C. Interests of Experts and Counsel ITEM 8. FINANCIAL INFORMATION A. Consolidated Statements and Other Financial Information B. Significant Changes ITEM 9. THE OFFER AND LISTING ITEM 10. ADDITIONAL INFORMATION A. Share Capital B. Memorandum and Articles of Association C. Material Contracts D. Exchange Controls E. Taxation F. Dividend and Paying Agents G. Statements by Experts H. Documents on Display I. Subsidiary Information ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES PART II ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS ITEM 15. CONTROLS AND PROCEDURES ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT ITEM 16B. CODE OF ETHICS ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS (i)

3 PART III... F-1 ITEM 17 FINANCIAL STATEMENTS...F-2 ITEM 18 FINANCIAL STATEMENTS...95 ITEM 19 EXHIBITS...96 (ii)

4 PRESENTATION OF INFORMATION Unless the context indicates otherwise, the Company, Electrolux or the Group refers to AB Electrolux, a company organized under the laws of Sweden, and its consolidated subsidiaries. The Company is not affiliated with, and should not be confused with, Aerus LLC (formerly known as Electrolux LLC) that sold vacuum cleaners under the Electrolux brand in the United States and Canada prior to December 1, Whenever the Electrolux brand name is used in this report, the reference excludes floor care products sold previously by Aerus LLC in North America. Unless otherwise indicated, all amounts herein are expressed in Swedish Kronor ( krona, kronor or SEK ). References to U.S. dollar, U.S.$, USD, dollar or $ are to the lawful currency of the United States. At times, this report presents financial and other information for a specific year that is immediately followed by an amount within (brackets). The amount within (brackets) represents the corresponding amount for the previous year. Electrolux prepares its consolidated financial statements in accordance with Swedish generally accepted accounting principles ( Swedish GAAP ). In addition, consolidated net income and stockholders equity are reported as reconciled to United States generally accepted accounting principles ( U.S. GAAP ). Unless otherwise indicated, all amounts and percentages presented herein are based on Swedish GAAP. Swedish GAAP as applied by the Company differs in certain significant respects from U.S. GAAP. For a discussion of the significant differences between Swedish GAAP and U.S. GAAP affecting Electrolux s consolidated financials statements and a reconciliation to U.S. GAAP of consolidated stockholders equity and consolidated net income as of and for the years ended December 31, 2004, 2003 and 2002, see Note 30 to the consolidated financial statements. This report also contains certain financial and performance measures where indicated that are not calculated in accordance with Swedish GAAP or U.S. GAAP, but which are disclosed herein in compliance with Item 10 of Regulation S-X under the Securities Exchange Act of 1934, as amended (the Exchange Act ). These non-gaap financial and performance measures are used extensively by management to evaluate the financial performance and results of operations of Electrolux. In particular, Electrolux s management considers value creation to be an important non-gaap performance measure. The non-gaap financial and performance measures are included herein to assist the reader in understanding Electrolux s operating results and financial condition from management s point of view. Non-GAAP financial and performance measures, however, should not be considered alternatives to the amounts reported in accordance with Swedish or U.S. GAAP. Furthermore, the non-gaap financial and performance measures included herein may not be comparable to similarly titled measures presented by other companies. Certain information presented in this Annual Report on Form 20-F relating to the markets in which Electrolux operates, such as the size of the particular market and the market share of Electrolux within such markets, has been obtained by Electrolux from market research reports, analysts reports and other publicly available information, as well as from internally developed market data. While Electrolux has no reason to believe that third-party sourced information is not reliable, such information has not been independently verified. Accordingly, the accuracy or completeness of this information cannot be guaranteed.

5 FORWARD LOOKING STATEMENTS This annual report includes forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of These statements do not relate strictly to historical or current facts; instead, such statements are often based on assumptions about future market conditions, operations and results. The words believe, expect, anticipate, intend, may, could, plan, possible, potential and similar expressions are intended to identify these statements. Forward-looking statements appear in a number of places in this report including, without limitation, Item 3.D Risk Factors, Item 4 Information on the Company and Item 5 Operating and Financial Review and Prospects, and include, among others, statements regarding: financial goals or targets of Electrolux for future periods; future business and financial plans; growth in demand for Electrolux s products; economic outlook and industry trends; developments of Electrolux s markets and competition; the impact of regulatory initiatives and pending and future litigation; research and development expenditures; plans to launch new products and services; and the expected cost savings from Electrolux s various cost-reduction measures. While Electrolux believes that the expectations reflected in these and other forward-looking statements are reasonable, actual results may differ materially from the expectations reflected in those statements due to a variety of factors, including, among others, the following: Electrolux s success in developing new products and marketing initiatives; progress in achieving operational and capital efficiency goals, including the success of reducing the number of product platforms; Electrolux s success in identifying growth opportunities and acquisition candidates, and the integration of any acquired businesses with existing businesses; Electrolux s success in spinning-off its Outdoor Products operations; Electrolux s success and progress in achieving structural and supply-chain reorganization goals; ability of Electrolux to relocate and/or outsource production to low-cost countries; failure of third party suppliers to deliver key components and materials for Electrolux s products; seasonality; competitive pressures to reduce prices; changes in commodity prices; significant loss of business from major customers; i

6 consumer demand and the success of Electrolux s global strategy to develop brand differentiation and brand loyalty; effects of exchange rate fluctuations; social, economic, regulatory and political volatility in the markets in which Electrolux operates; effect of local economies on product demand; Electrolux s ability to recruit and retain highly qualified management and other employees; the results of pending and future litigation; adequacy of Electrolux s insurance coverage; general economic conditions in the markets in which Electrolux operates, and its ability to adapt to rapid changes in market conditions; political, economic and regulatory developments in the markets in which Electrolux operates; and the transition from Swedish GAAP to IFRS. Certain of these factors are discussed in more detail elsewhere in this annual report, including under Item 3.D Risk Factors, Item 4 Information on the Company and Item 5 Operating and Financial Review and Prospects. Electrolux undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law or stock exchange regulation. It is not possible to foresee or identify all factors that could cause future results to differ from expected or historic results. Therefore, investors should not consider the foregoing factors to be an exhaustive statement of all risks, uncertainties or factors that could potentially cause actual results to differ from projections in this report. ii

7 PART I ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS Not applicable. 1

8 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE Not applicable. 2

9 ITEM 3. KEY INFORMATION A. SELECTED FINANCIAL DATA The following table sets out selected financial data as of and for the years ended December 31, 2004, 2003, 2002, 2001 and 2000: Amounts in accordance with Swedish GAAP (SEK millions, except share and per share amounts, and ratios) Consolidated Income Statement Data Net Sales , , , , ,493 Operating Income... 4,714 7,175 7,731 6,281 7,602 Income After Financial Items... 4,359 7,006 7,545 5,215 6,530 Net Income... 3,148 4,778 5,095 3,870 4,457 Net Income per share, basic Net Income per ADS, basic Net Income per share, diluted Net Income per ADS, diluted Consolidated Balance Sheet Data Current Assets... 49,473 53,418 57,726 62,096 57,609 Total Assets... 74,932 77,028 85,424 94,447 87,289 Long Term Debt ,940 8,492 14,080 17,927 16,549 Minority Interests Stockholders' Equity... 23,410 27,462 27,629 28,864 26,324 Capital Stock... 1,545 1,621 1,694 1,831 1,831 Number of shares (in thousands) , , , , ,170 Number of shares excluding repurchased shares , , , , ,135 Performance Measure Value Creation ,978 3,449 3, ,423 Amounts calculated in accordance with U.S. GAAP Net Sales , , , , ,350 Operating Income ,277 7,054 7,297 6,648 7,947 Net Income ,788 4,881 5,308 3,741 4,926 Net Income from Continuing Operations 4,5... 2,788 4,879 4,220 4,042 4,530 Net Income per share, basic Net Income per ADS, basic Net Income per share, diluted Net Income per ADS, diluted Net Income from Continuing Operations per share, basic 4, Net Income from Continuing Operations per ADS, basic 4, Net Income from Continuing Operations per share, diluted Net Income from Continuing Operations per ADS, diluted Stockholders' Equity ,567 27,348 27,504 28,591 26,411 Total Assets ,517 78,372 86,095 95,206 88,293 Dividends per ADS SEK 6, USD 6,7,

10 1. Long-term debt consists of long-term borrowings plus interest-bearing pension liabilities. 2. Value creation is a performance measure extensively used by Electrolux for internal reporting purposes, as a management tool for measuring and evaluating financial performance within the Group as well as a basis for remuneration. Value creation is not a measure determined in accordance with GAAP. Electrolux believes however that its definition links operating income and asset efficiency with the cost of the capital employed in operations. Value creation should not be considered as an alternative measure of performance and may not be comparable to similar measures disclosed by other companies because value creation is not uniformly defined. Value creation is measured excluding items affecting comparability and defined as operating income less the weighted average cost of capital (WACC) on average net assets during a specific period. Value creation is reconciled to operating income as follows: (SEK millions, except percentages) Operating Income 4,714 7,175 7,731 6,281 7,602 Excluding items affecting comparability 1, ,674 7,638 8,165 6,422 8,050 Less asset capital charge 3,696 4,189 4,704 6,160 5,627 Value Creation 2,978 3,449 3, ,423 Weighted Average Cost of Capital x 12% 13% 13% 14% 14% Average net assets = 30,797 32,226 36,182 44,002 40,194 Asset capital charge 3,696 4,189 4,704 6,160 5,627 The cost of capital varies between different countries and business units due to country-specific factors such as interest rates, risk premiums and tax rates. WACC is calculated annually by Electrolux to apply for the following year on the basis of agreed parameters aimed at determining the Group s cost of capital. Net assets are total assets exclusive of liquid funds (short-term investments and cash and bank balances), interest-bearing financial receivables, as well as non-interest-bearing liabilities and provisions and excluding items affecting comparability. A higher return on net assets than the WACC implies that the Group creates value. 3. The years have been reclassified for comparison purposes due to the disclosure of discontinued operations. 4. Upon adoption of SFAS 142 on January 1, 2002, Electrolux ceased amortization of goodwill and indefinite-lived intangible assets for U.S. GAAP reporting purposes. Amortization expense on goodwill and indefinite-lived intangible assets on a U.S. GAAP basis for the years ended December 31, 2001 and 2000 was SEK 222 million and SEK 168 million, respectively. 5. Under SFAS 144, each of the following 2003 and 2002 divestments are accounted for as discontinued operations: Vestfrost A/S, the compressor operation, Zanussi Metallurgica, the European motor operation, the Mexican compressor plant, the European home comfort operation and the remainder of the leisure appliance product line. Please see Note 26 to the consolidated financial statements. 6. Weighted average number of shares outstanding was 298,314,025 shares for 2004; 313,270,489 shares for 2003; 327,093,373 shares for 2002; 340,064,997 shares for 2001; and 359,083,955 shares for The decreases in weighted average number of shares outstanding for these periods reflect open market repurchases of shares by Electrolux and the redemption of shares in Dividends are set forth in the above table under the year to which they relate. In accordance with general practice in Sweden, the dividends are declared and paid in the year following the financial period. The 2004 dividend is subject to approval at the AGM to be held on April 20, Amounts in U.S. dollars are presented for convenience only and are based on the noon buying rate for cable transfers in SEK as certified for customs purposes by the Federal Reserve Bank of New York at each of the respective payment dates, except for the U.S. dollar amount in 2004, which is based on the noon buying rate for SEK at December 31, 2004 of $1 = SEK Exchange Rate Information The following table presents information with respect to the exchange rate for Swedish kronor per USD 1.00, based on the noon buying rate for cable transfers in SEK as certified for customs purposes by the Federal Reserve Bank of New York. On April 6, 2005 the noon buying rate for SEK was USD 1.00=SEK

11 Period Average Rate 1 High Low (SEK per USD) Year ended December 31, Year ended December 31, Year ended December 31, Year ended December 31, Year ended December 31, October November December January February March Based on the applicable exchange rate for the last day of each month during the period indicated. Average rates are not presented for months. Fluctuations in the exchange rate between the Swedish kronor and the dollar may affect the dollar equivalent of the Swedish kronor price of the Electrolux B Shares traded on the Stockholm Exchange and, as a result, are likely to affect the price of ADSs in the United States. Such fluctuations will also affect the dollar amounts received by holders of ADSs on conversion by the Depositary of cash dividends paid in kronor on the Electrolux B Shares represented by ADSs. For a discussion of the effects of currency fluctuations on Electrolux s business, please see Item 5 Operating and Financial Review and Prospects and Item 11 Quantitative and Qualitative Disclosures About Market Risk. B. CAPITALIZATION AND INDEBTEDNESS Not applicable. C. REASONS FOR THE OFFER AND USE OF PROCEEDS Not applicable. D. RISK FACTORS You should carefully consider all of the information in this Annual Report and, in particular, the risks outlined below. Electrolux markets are highly competitive and subject to price pressure. The markets for Electrolux products are highly competitive and there is considerable pressure to reduce prices, especially when faced with an economic downturn and possible reductions in consumer demand. The effects of competition and price pressure are particularly apparent for floor-care products in the United States and in Europe, small appliances generally and for consumer outdoor products in Europe. Electrolux faces strong competitors, who may prove to have greater resources in a given business area, and the likely emergence of new competitors, particularly from Asia and Eastern Europe. Some industries in which Electrolux operates are undergoing consolidation, which may result in stronger competitors and a change in Electrolux relative market position. There is also a trend, particularly in Europe, towards globalization among Electrolux customers in the retail sector, which means fewer, bigger and more international retail chains. As these retailers are consolidating their supplier base, the competition among suppliers may increase. In response to an increasingly competitive environment, Electrolux and other manufacturers may be forced to increase efficiency by further reducing costs along the value chain, including their suppliers. The development of alternative distribution channels, such as the Internet, could also contribute to further price pressure within Electrolux markets. There can be no assurances that Electrolux will be able to adapt to these changes and increase or maintain its market share. 5

12 Electrolux is subject to risks relating to the relocation of manufacturing capacity. As part of its strategy of continued reduction of costs and rationalization of its production activities, Electrolux has in the past, and will in the future, relocate some of its manufacturing capacity to low cost countries. For example, in 2004 Electrolux decided to relocate its production of refrigerators in Greenville, Michigan, to a new facility which is being built in Mexico; to close its vacuum plant in Västervik, Sweden, and gradually transfer production to Hungary; to close its vacuum-cleaner operations in El Paso, Texas and transfer production to Mexico; and to close its factory for tumble-dryers in Tommerup, Denmark and transfer production to a new plant in Thailand and a plant in Sweden. Electrolux has announced restructuring measures of approximately SEK 8 10 billion for the years that encompass further relocation of some of its manufacturing capacity. The transfer of production from one facility to another is costly and presents the possibility of additional disruptions and delays during the transition period. Electrolux might not be able to successfully transition production to different facilities. Any prolonged disruption in the operations of any of its manufacturing facilities or any unforeseen delay in shifting manufacturing operations to new facilities, whether due to technical or labor difficulties or delays in regulatory approvals, could result in delays in shipments of products to Electrolux customers, increased costs and reduced revenues. Consolidation of retail chains has resulted in increased dependence on a number of large customers. Due to the ongoing consolidation of retail chains, major customers account for a large and increasing part of Electrolux sales. This trend is particularly significant in the Consumer Durables business area, as most products in this business area are sold through major retail chains. This trend towards consolidation has resulted in greater commercial and credit exposures. If Electrolux were to experience a material reduction in orders or become unable to collect fully its accounts receivable from a major customer, its net sales and financial results would suffer. Electrolux operating results may be affected by seasonality. Demand for certain of Electrolux products is affected by seasonality and factors that are hard to predict such as the weather. For example, market demand for lawn mowers, trimmers and room air conditioners is generally lower during the winter season. As a result, Electrolux outdoor products and room air conditioners product lines experience most of their sales volume and profitability in the first seven months of the year. Electrolux expects this seasonality to continue in the future. Electrolux future success depends on its ability to develop new and innovative products. Product innovation and development are critical factors in maintaining market share in all of Electrolux product lines. To meet Electrolux customers needs in these businesses, Electrolux must continuously design new, and update existing, products and services and invest in and develop new technologies. Product development is also driven by criteria for better environmental performance and lower cost of use. Introducing new products requires significant management time and a high level of financial and other commitments to research and development, which may not result in success. During 2004, Electrolux invested SEK 2,052 million in research and development, primarily related to product development in the Consumer Durables business area. Electrolux sales and net income may suffer if investments are made in technologies that do not function as expected or are not accepted in the marketplace. Electrolux may experience difficulties relating to business acquisitions and dispositions. Electrolux has in the past, and may in the future, increase significant market positions in its product areas through organic growth and acquisitions and by improving operational efficiencies. Expansion through acquisitions is inherently risky due to the difficulties of integrating people, operations, technologies and products. Electrolux may incur significant acquisition, administrative and other costs in connection with any such transactions, including costs related to integration of acquired or restructured businesses. There can be no assurances that Electrolux will be able to successfully integrate any businesses it acquires into existing operations or that they will perform according to expectations once integrated. Similarly, Electrolux dispositions of certain non-core assets may prove more costly than anticipated and may affect its net sales and results of operations. 6

13 Electrolux may not be able to successfully implement planned cost-reduction measures and generate the expected cost-savings. In 2002 and 2004, as well as in earlier years, Electrolux has implemented restructuring programs in an effort to improve operating efficiencies and the Group s profitability. These restructuring measures included the divestitures of unprofitable non-core operations, layoffs of employees, consolidation of manufacturing operations and other cost-cutting measures. Electrolux has also put substantial effort into driving down costs and complexity throughout the supply chain by improving integration of the supply chain and demand flow management. There can be no assurances that these measures, or the further expected restructuring measures of approximately SEK 8 10 billion in respect of the years , will generate the level of cost savings that Electrolux has estimated going forward. Electrolux is dependent on third party suppliers to deliver key components and materials for its products. Electrolux manufacturing process depends on the availability and timely supply of components and raw materials, generally from third party suppliers. While supply problems can affect the performance of most of Electrolux business sectors, Electrolux is particularly sensitive to supply problems related to electronic components, compressors, steel, plastics, aluminum and copper. Electrolux works closely with its suppliers to avoid supply-related problems and is increasing its supply of sourced finished products, but there can be no assurances that it will not experience problems in the future. Such problems could have material adverse effects on the business, results of operations or financial condition of Electrolux. In addition, unanticipated increases in the price of components or raw materials due to market shortages could also adversely affect the financial results of Electrolux businesses. Electrolux is subject to risks related to changes in commodity prices. Electrolux is subject to risks related to changes in commodity prices as the ability to recover increased cost through higher pricing may be limited by the competitive environment in which Electrolux operates. The recent development in many commodity markets has resulted in higher prices, particularly for steel and plastics. This has had an adverse affect on the Group s operating results in 2004 and is expected to negatively affect the Group s operating result in Electrolux uses commodity futures to hedge immaterial amounts of commodity purchases, primarily related to copper and aluminum. For more details regarding commodity price risk, please see Item 11 Quantitative and Qualitative Disclosures About Market Risk. Electrolux is exposed to foreign exchange risks and interest rate risk. Electrolux operates in approximately 60 countries around the world and as a result is subject to the risks associated with cross-border transactions. In particular, Electrolux is exposed to foreign currency exchange rate risks and risks relating to delayed payments from customers in certain countries or difficulties in the collection of receivables generally. Electrolux is also subject to risks arising from translation of balance sheets and income statements of foreign subsidiaries. The major currencies that Electrolux is exposed to are the Euro, the U.S. dollar (including currencies correlating with the dollar) and the British pound. While Electrolux geographically widespread production and its hedging transactions reduce the effects of changes in exchange rates, there can be no assurances that these measures will be sufficient. In addition, Electrolux holds assets and liabilities to manage the liquidity and cash needs of its day-today operations. These interest rate sensitive assets and liabilities are subject to interest rate risk. While these interest rate exposures are minimized to some extent by the use of derivative financial instruments, there can be no assurances that these hedging activities will be effective or sufficient. For more details regarding currency risks and interest rate risks, please see Item 11 Quantitative and Qualitative Disclosure About Market Risk. Electrolux business is affected by global economic conditions. Current conditions in many of the economies in which Electrolux operates and the global economy remain very uncertain. As a result, it is difficult to estimate the global and regional economic development for 7

14 the foreseeable future. In addition, the business environment and the economic condition of Electrolux markets are also influenced by political uncertainties, including the current political situation in the Middle East. A lengthy recession or sustained loss of consumer confidence in the markets in which Electrolux operates could trigger a significant industry-wide decline in sales and could also lead to slower economic growth and a corresponding significant reduction in demand. Electrolux generates a substantial portion of its net sales from North America and Europe, both of which have experienced a slow economy in the past. In the last two years, North America has demonstrated a rebound in its economy. Recent years' terrorist attacks have had a negative impact also on tourism, which has negatively affected the performance of Electrolux Professional Indoor business operations. These global and regional conditions could have an adverse impact on the operations of Electrolux, with a resulting material adverse effect on results of operations and financial condition. Electrolux is subject to regulatory risks associated with its international operations. As a result of its worldwide operations, Electrolux is subject to a wide variety of complex laws, regulations and controls, and various non-binding treaties and guidelines, such as those related to employee safety, employee relations, product safety and exchange controls. Electrolux expects that sales to, as well as manufacturing in, and sourcing from, emerging markets, in particular in China, Southeast Asia, as well as Eastern Europe and Mexico, will continue to be an increasing portion of its total operations. Changes in regulatory requirements, economic and political instability, tariffs and other trade barriers and price or exchange controls could limit its operations in these countries and make the repatriation of profits difficult. In addition, the uncertainty of the legal environment in certain of the countries in which it operates could limit Electrolux ability to enforce effectively its rights in those markets. Electrolux products are also affected by environmental legislation in various markets, which principally involves limits for energy consumption (which relate to certain of its white goods products) and emissions (which relate to certain of its outdoor products that are powered by gasoline) as well as the obligation to recycle waste of electrical products. Electrolux is subject to certain environmental risks. Electrolux operations are subject to numerous European Union, or EU, national and local environmental, health and safety directives, laws and regulations, including those pertaining to the storage, handling, treatment, transportation and disposal of hazardous and toxic materials, the construction and operation of its plants and standards relating to the discharge of pollutants to air, soil and water. Although Electrolux believes its operations are in substantial compliance with presently applicable environmental, health and safety laws and regulations, violations of such laws and regulations have occurred from time to time and may occur in the future. In addition, risks of substantial costs and liabilities, including for the investigation and remediation of past or present contamination, are inherent in Electrolux ongoing operations and its ownership or occupation of industrial properties, and may arise specifically from its planned closure of certain of its manufacturing plants. Other developments, such as increased requirements of environmental, health and safety laws and regulations, increasingly strict enforcement of them by governmental authorities, and claims for damage to property or injury to persons resulting from environmental, health or safety impacts of Electrolux operations or past contamination, could prevent or restrict its operations, result in the imposition of fines, penalties or liens, or give rise to civil or criminal liability. Electrolux maintains liability insurance at levels that management believes are appropriate and in accordance with industry practice. In addition, Electrolux maintains provisions on its balance sheet for certain environmental remediation matters. There can be no assurances, however, that (i) Electrolux will not incur environmental losses beyond the limits, or outside the coverage, of any insurance or that any such losses would not have a material adverse effect on the results of its operations or financial condition, or (ii) Electrolux provisions for environmental remediation will be sufficient to cover the ultimate loss or expenditure. Compliance with EU directives regulating environmental impacts associated with electrical and electronic equipment may be costly. The EU has adopted two directives specifically regulating environmental impacts associated with electrical and electronic equipment, and compliance with these directives is being phased in. The Waste Electrical and Electronic Equipment, or WEEE, directive imposes responsibility on manufacturers and importers of electrical and electronic equipment for the cost of recycling, treatment and disposal of such equipment after 8

15 its useful life. Based on Electrolux present working assumptions, its preliminary estimate of the annual cost to Electrolux with respect to products sold before August 2005, the date compliance with the directive comes into effect, is approximately SEK 600 million, and an additional SEK 600 million with respect to products sold after August These estimates remain highly uncertain, as most EU Member States, including Sweden, have not yet integrated the directive into their national legislation and the specific requirements and impacts of the directive in each State will not be known until such integration occurs. Compliance with the WEEE directive could have a potential material adverse effect on Electrolux income, financial position and cash flow. The Directive on the Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment, known as the RoHS directive, will ban placement in the EU market of electrical or electronic equipment containing lead, mercury, cadmium, hexavalent chromium and two groups of brominated flame retardants from July 1, 2006, with a number of exceptions. Almost all Electrolux electrical equipment must be modified to some extent to fulfill the RoHS directive, as Electrolux commonly uses some of the prohibited substances at present. For more details regarding the WEEE Directive, see Item 4.B Business Overview Environmental and Other Governmental Regulation - Recent Environmental Developments. Lawsuits in the United States claiming asbestos-related personal injuries are pending against the Electrolux Group. Litigation and claims related to asbestos are pending against the Group in the United States. Almost all the cases relate to externally supplied components used in industrial products manufactured by discontinued operations of Electrolux prior to the early 1970s. Many of the cases involve multiple plaintiffs who have made identical allegations against many other defendants who are not part of the Electrolux Group. As of December 31, 2004, there were 842 (584) lawsuits pending against Electrolux entities representing approximately 16,200 (approximately 21,000) plaintiffs. During 2004, 457 new cases with approximately 5,600 plaintiffs were filed and 199 pending cases with approximately 10,500 plaintiffs were resolved. Approximately 15,100 of the plaintiffs relate to cases pending in the State of Mississippi. Electrolux believes its predecessor companies may have had insurance coverage applicable to some of the cases during some of the relevant years. Electrolux is currently in discussions with those insurance carriers. Additional lawsuits may be filed against Electrolux in the future. It is not possible to predict either the number of future claims or the number of plaintiffs that any future claims may represent. In addition, the outcome of asbestos claims is inherently uncertain and always difficult to predict and Electrolux cannot provide any assurances that the resolution of these types of claims will not have a material adverse effect on its business or results of operations in the future. Electrolux may incur higher than expected warranty expenses. Electrolux value chain comprises all the steps in its operations, from research and development, to production to marketing and sales. Operational failures in its value chain processes could result in quality problems or potential product, labor safety, regulatory or environmental risks. Such risks are particularly present in relation to Electrolux production facilities which are located all over the world and have a high degree of organizational and technological complexity. Unforeseen product quality problems in the development and production of new and existing products could result in loss of market share and higher warranty expense, any of which could have a material adverse effect on Electrolux results of operations and financial condition. Electrolux may be subject to significant product recalls or product liability actions that could adversely affect its results of operations. Under laws in many countries regulating consumer products, Electrolux may be forced to recall or repurchase some of its products under certain circumstances, and more restrictive laws and regulations may be adopted in the future. For example, as a manufacturer and distributor of consumer products in the United States, Electrolux is subject to the U.S. Consumer Products Safety Act, which empowers the U.S. Consumer Products Safety Commission to exclude products from the U.S. market that are found to be unsafe or hazardous. Under 9

16 certain circumstances, the U.S. Consumer Products Safety Commission could require Electrolux to repurchase or recall one or more of its products. Any repurchase or recall of products could be costly to Electrolux and could damage its reputation. If Electrolux was required to remove, or it voluntarily removed, its products from the market, Electrolux reputation could be tarnished and it might have large quantities of finished products that could not be sold. Accordingly, there can be no assurances that product recalls would not have a material adverse effect on Electrolux business, results of operations and financial condition. Electrolux also faces exposure to product liability claims in the event that one of its products is alleged to have resulted in property damage, bodily injury or other adverse effects. Electrolux has become implicated in certain lawsuits in the ordinary course of its business, including suits involving allegations of improper delivery of goods or services, product liability and product defects and quality problems. Electrolux is largely selfinsured for product liability matters expected to occur in the normal course of business and funds these risks, for the most part, through wholly owned insurance subsidiaries. Electrolux accrues for such self-insured claims and litigation risks when it is probable that an obligation has been incurred and the amount can be reasonably estimated. In addition, for large catastrophic losses, Electrolux maintains excess product liability insurance with third-party carriers in amounts that it believes are reasonable. However, there can be no assurances that product liability claims will not have a material adverse effect on Electrolux business, results of operations or financial condition. Electrolux is subject to risks related to its insurance coverage. Electrolux maintains third-party insurance coverage and self-insures through wholly owned insurance subsidiaries (captives) for a variety of exposures and risks, such as property damage, business interruption and product liability claims. However, while Electrolux believes it has adequate insurance coverage for all anticipated exposures in line with industry standards, there can be no assurances that (i) Electrolux will be able to maintain such insurance on acceptable terms, if at all, at all times in the future or that claims will not exceed, or fall outside of, its third-party or captive insurance coverage, or (ii) its provisions for uninsured or uncovered losses will be sufficient to cover its ultimate loss or expenditure. Electrolux plan to successfully spin-off its Outdoor Products operations may be affected by unanticipated factors beyond its control. In February 2005, the Electrolux Board announced its intention to spin-off the Group's Outdoor Products operations as a separate unit to create the best possible framework for continued profitable growth for this operation, as well as to create value for shareholders. Electrolux aims to achieve the spin-off in a costeffective way, and to finalize it no later than mid As Electrolux refines its plan for the spin-off, it may encounter significant obstacles or delays that have not been anticipated and that prevent it from achieving its goals in relation to the spin-off according to existing plans and on time. There can be no assurance that Electrolux will be successful in completing the spin-off as currently planned, nor that the benefits expected to be realized from the spin-off will be achieved. See Changes in Segment Reporting for 2005 on page 22 of this report for a description of the Group s Outdoor Products business. 10

17 ITEM 4. INFORMATION ON THE COMPANY A. HISTORY AND DEVELOPMENT OF THE COMPANY Aktiebolaget Electrolux (publ) is a limited liability company organized under the laws of the Kingdom of Sweden. The address of the Company s registered office is S:t Göransgatan 143, S Stockholm, Sweden, and its telephone number at such address is Electrolux s web site is Founding 1910 Electrolux was incorporated as Elektromekaniska AB Elektromekaniska AB merged with Swedish AB Lux, and Aktiebolaget Electrolux was established. Electrolux led the development of the modern canister-type vacuum cleaner and the absorption refrigerator during the early part of the 20th century. Stock exchange listing 1928 Electrolux was introduced on the London Stock Exchange. The Group had five plants, approximately twenty subsidiaries and 250 offices throughout the world, and a total turnover of SEK 70 million Electrolux was listed on the Stockholm Stock Exchange. In 1987, trading of American Depositary Receipts, ADRs, representing Electrolux B-shares started on the NASDAQ National Market. Expansion 1933 Vacuum cleaner production began in Old Greenwich, Connecticut, USA, and the first air-cooled refrigerator was produced s Electrolux initiated the restructuring of the fragmented Western European white goods industry. In 1968, the minority interest (39%) in Electrolux Corp., USA was sold to Consolidated Food for almost SEK 300 million. The cash generated provided Electrolux with the key to future expansion Italian company Zanussi, including subsidiaries in Spain, was acquired, making Electrolux a leader in the European household appliances market and in the food service equipment market WhiteConsolidated Inc, the third largest white goods company in the United States with brands such as Frigidaire, Gibson, Kelvinator and White Westinghouse, was acquired The Outdoor Products business area expanded with the 1986 acquisition of the U.S. company Poulan/Weed Eater and the 1989 acquisition of the outdoor power products business of the Roper Corporation. Strengthening core business 1990's The European expansion continued with the 1994 purchase of the white-goods division of German AEG. Restructuring programs and other measures were implemented to improve profitability, e.g. a two-year restructuring program in 1997, beginning with the divestment of the industrial products sector, as well as the sewing machines, agricultural implements and interior decoration equipment operations. In 1998 the core business comprised Household Appliances, Professional Appliances and Outdoor Products, and Annual Group Sales had grown to SEK 117 billion Electrolux AB re-acquired the trademark and company name Electrolux in North America, and thereby gained global control of the company name and the Group s most important brand The household division of the Australian company Ltd, was acquired in During 2001 and 2002 two restructuring programs were implemented throughout the Group, with divestments of non-core business, productivity improving measures, cost cutting, consolidation of production, rationalization of sales and marketing, write-downs of assets and personnel cutbacks The consolidation of brands, with Electrolux as main brand, accelerated and a consumer insight driven product development process was initiated. The group re-introduced the Electrolux brand in USA with vacuum cleaners in 2003 followed by high-end white goods in During 2003 and 2004 relocation of manufacturing to low cost countries, e.g. to Eastern Europe, South-East Asia and Mexico, accelerated. See Item 5 Operating and Financial Review and Prospects Restructuring Programs. Today Electrolux is one of Sweden s largest industrial enterprises with 276 subsidiaries in approximately 60 countries as of December 31,

18 For more information on the Group s recent acquisitions and divestitures, please see Item 5 Operating and Financial Review and Prospects Significant Actions and Transactions Affecting Results and Financial Condition. For a discussion of Electrolux principal capital expenditures during the past three years, please see Item 5.B Liquid Funds and Capital Resources. B. BUSINESS OVERVIEW With net sales of SEK billion in 2004, Electrolux believes it is the world s largest producer of appliances and equipment for kitchen, cleaning and outdoor use combined. Electrolux sold more than 55 million products last year, including products such as refrigerators, cookers, washing machines, vacuum cleaners, chainsaws, lawnmowers and garden tractors. Electrolux s products are targeted at both professionals and retail consumers. Electrolux conducts operations in approximately 60 countries. The following table provides a breakdown of Electrolux s net sales by region for each of the last three years: Net Sales by Region SEK million % 1 SEK million % 1 SEK million % 1 Sweden... 4, , , Europe (excluding Sweden)... 53, , , North America... 46, , , Rest of the world... 16, , , Consolidated net sales , , , As a percentage of consolidated net sales. Strategy Electrolux aims to be a global leader in the market for consumer durables for indoor use. To this end, while significant volumes and economies of scale are of utmost importance, Electrolux s key strategies are to be one of the most significant suppliers to the main retailers and to be recognized as a leading brand and manufacturer among customers. Electrolux intends to continue to develop into a market-driven company that is ahead of the competition in addressing consumer needs. To achieve this objective, Electrolux is implementing the following measures: continuing reduction of costs and the complexity of the organization; accelerating consolidation and relocation of production; accelerating the rate of product renewal based on consumer needs; and increasing marketing and brand building focusing on fewer and stronger brands, with focus on Electrolux as a global brand for the Group. Electrolux Business Areas Electrolux products are classified in two areas: Consumer Durables and Professional Products. These areas form the basis for the Group s primary segment information. Consumer Durables comprises mainly major appliances (including refrigerators, freezers, cookers, dryers, washing machines, dishwashers, room air-conditioners and microwave ovens), as well as floor-care products and garden equipment; 12